Morningstar® Document Research℠ FORM 10-KSunworks, Inc. - SUNWFiled: March 28, 2012 (period: December 31, 2011)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. U.S. SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549 FORM 10-K xx ANNUAL REPORT UNDER SECTION 13 OR 15(D) OFTHE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended: December 31, 2011Commission file number 000-49805SOLAR3D, INC.(Exact name of registrant as specified in its charter)Delaware01-05922991(State of Incorporation)(I.R.S. Employer Identification No.) 6500 Hollister Avenue, Suite130, Goleta, California 93117(Address of principal executive offices) (Zip Code)(805) 690-9000Registrant’s telephone number, including area codeSecurities registered pursuant to Section 12(g) of the Act: Title of Each ClassName of Each Exchange OnWhich Registered COMMON STOCKOTCIndicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.Yes o No x Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.Yes o No x Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No o Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data Filerequired to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files). Yes x No o Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained,to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendmentto this Form 10-K. Yes o No x Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reportingcompany. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.Large accelerated filero Accelerated fileroNon-accelerated filer(Do not check if a smaller reporting company)o Smaller reporting companyxIndicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x The aggregate market value of voting stock held by non-affiliates of the registrant was approximately $14,807,704 as of June 30, 2011 (computedby reference to the last sale price of a share of the registrant’s Common Stock on that date as reported by OTC Bulletin Board).There were 122,062,772 shares outstanding of the registrant’s Common Stock as of March 15, 2012. Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsTABLE OF CONTENTS PART I ITEM 1Business3ITEM 2Properties5ITEM 3Legal Proceedings5ITEM 4[Removed and Reserved]5 PART II ITEM 5Market for Registrant’s Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities6ITEM 6Selected Financial Data7ITEM 7Management’s Discussion and Analysis of Financial Condition and Results of Operations7ITEM 8Financial Statements and Supplementary Data12ITEM 9Changes in and Disagreements with Accountants on Accounting and Financial Disclosure25ITEM 9AControls and Procedures25ITEM 9BOther Information26 PART III ITEM 10Directors, Executive Officers, and Corporate Governance27ITEM 11Executive Compensation30ITEM 12Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters34ITEM 13Certain Relationships and Related Transactions, and Director Independence35ITEM 14Principal Accounting Fees and Services35 PART IV ITEM 15Exhibits, Financial Statement Schedules36 SIGNATURES37 Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsPART IITEM1. BUSINESSGeneralSolar3D, Inc. is a Delaware corporation formed to engage in the business of developing and marketing a new three-dimensional version of solar celltechnology in order to maximize the conversion of sunlight into electricity. Conventional solar cells reflect a significant amount of incident sunlight, losingmuch of the solar energy that could be utilized to produce additional electrical power. Inspired by light management techniques used in fiber optic devices,Solar3D is designing a new type of solar cell, one that utilizes a three-dimensional design to trap sunlight inside the photovoltaic structure where it isreflected multiple times until much more of the energy is absorbed into the solar cell material. We have applied for patent protection on what we believe tobe a breakthrough design for the next generation in solar cell technology with increased efficiency and resulting in a lower cost per watt of electricityproduced.Corporate HistoryWe were originally formed in January 2002 as MachineTalker, Inc. in order to pursue the development of new wireless process controltechnology. In August 2005, we filed a Registration Statement on Form SB-2 which was declared effective by the Securities and Exchange Commission onDecember 22, 2005. In September 2010, we shifted our engineering and research focus to developing a new means for generating solar-produced electricalpower for use in the manufacture of highly efficient solar cells. In July 2010, we changed our company name to Solar3D, Inc. in order to better reflect our newbusiness plan and filed for patent protection covering our new concepts for 3D solar cell designs.Background of Solar Cell TechnologySolar cell efficiency is the measure of how much incident sunlight is converted into electricity. Most solar cells today are made from silicon, aninexpensive and abundant raw material. Due to the physics of silicon, the theoretical maximum efficiency of high-grade crystalline silicon solar cells isapproximately 29%. In commercial practice, the efficiency ranges from 12% to 19%. We anticipate that our 3D solar cell technology will increase theefficiency of solar cells using low cost processes, in order to decrease the overall cost per watt of solar electricity.Traditional solar cells are two-dimensional, utilizing a single pass sunlight conversion mechanism. There are two primary ways that these deviceslose light and electrons, or electron-hole pairs to be precise, which result in a conversion efficiency much less than the theoretical maximum.· Surface Reflection – Due to fundamental physics, approximately 30% of incident sunlight is reflected off the surface of silicon cells. · Electron Reabsorption – When a photon strikes the solar cell, an electron is “knocked loose” creating an electron-hole pair that movesthrough the cell material creating an electrical current. However, in conventional two-dimensional solar cell designs, these electron-holepairs must travel a long distance before reaching a metal contact wire. As a result, they are reabsorbed by the material and do not contributeto the production of electrical current. Our 3D Solar Cell TechnologyWe are designing our three-dimensional solar cell from the ground up as an integrated optoelectrical device that optimally reduces all primaryenergy losses in a solar cell to achieve the highest efficiency. By leveraging the scalability of conventional solar and semiconductor processes, we believeour 3D solar cell can deliver an unprecedented level of cost and conversion efficiency.Unlike conventional solar cells where sunlight passes through one time, our 3D solar cell design is planned to use myriad 3D micro-cells that trapsunlight inside photovoltaic structures where photons bounce around until they are all converted into electricity. Our three-dimensional technology isexpected to combine thin- and thick-film technologies to achieve the high efficiencies of crystalline at the lower cost per watt of thin film. 3Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsWe believe the key features and benefits of our 3D solar cell design are:· Light Collectors – Instead of allowing sunlight to bounce off the surface, the new design uses an array of light collecting elements to guideall incident sunlight into a matching array of highly optimized 3D micro-photovoltaic structures. · 3D Photovoltaic Structure – Conventional solar cells have one photon absorbing surface. The new design uses a multi-facetted 3Dphotovoltaic structure where photons can bounce off many surfaces until all photons that can be absorbed by the material are absorbed. · Thin Absorbing Regions – Our 3D photovoltaic structure is anticipated to be fabricated with very thin absorbing regions and designed toenhance charge carrier separation. Therefore, electron-hole pairs will travel short distances before reaching a contact wire where they willbe quickly extracted to produce current. We believe this approach will lead to an overall height and silicon material reduction whencompared to conventional crystalline silicon cells. · Below Surface Contacts – Unlike conventional solar cells where electrical contact wires run on the top of the cell, blocking sunlight, ourdesign is expected to use a network of contact wires that run below the light collectors. We believe this approach will allow our 3D solarcells to trap and utilize nearly 100% of the incident light. · A New Solar Cell Design – Almost all conventional solar cells are two-dimensional designs based on wafer or thin film manufacturingprocesses. As a result, their performance is naturally constrained by their physical structure. By redefining the problem in 3D, we expectthat the new design will be able to break down the 2D constraints and develop a more efficient solution. Our initial commercialization objective is to create a low cost, high efficiency silicon solar cell based on our 3D technology. By keeping our focuson silicon, we believe we can leverage the tremendous silicon infrastructure and manufacturing processes of the growing solar industry, as well as the matureand highly optimized semiconductor industry. However, we anticipate that our 3D technology will be able to be used to create multi-junction cells withexotic materials such as gallium arsenide to achieve efficiencies that may be greater than 50% for use in concentrated solar and high performanceapplications.Business and Revenue ModelsWe recently began developing a working version of our proprietary three-dimensional solar cell technology. We are seeking association with asuccessful manufacturer of optoelectrical circuitry so that when we complete a working prototype it can be packaged in a commercially viable solar cell arrayto then be marketed to existing manufacturers of conventional solar panels. We believe that these manufactures will be able to use our device to increase theenergy output of their existing products. We expect to earn revenue from licensing fees and by partnering or joint venturing with entities who seek to use ourproprietary three-dimensional solar cell technology.Sale of Wideband Detection Technologies, Inc.In June 2011, we sold the entire MachineTalker technology and business to Roland F. Bryan, a director and executive officer of the Company, inconsideration for a secured promissory note from Mr. Bryan and assumption of significant liabilities by the new owner. The sale was made by contributingthe MachineTalker business and technology to Wideband Detection Technology, Inc. (“WDTI”), our prior wholly owned subsidiary, and then selling 100%of the outstanding capital stock of WDTI to Roland F. Bryan. 4Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsCompetitionThe market for solar cell technology is highly competitive. There are many companies throughout the world that manufacture solar cell arrays usingexisting technology and several other companies pursuing new methods to produce more energy efficiency using photovoltaic structures. Additionally,researchers at universities worldwide are currently working on new means to increase photovoltaic efficiency. Many of these competitors have longeroperating histories, greater name recognition, larger installed customer bases, and substantially greater financial and marketing resources than Solar3D. Ourability to compete successfully in this field will depend upon our completion of development of our proprietary technique for production of more efficientsolar cells and the adoption of our technology by major manufacturers in the field. We cannot assure that we will be able to compete successfully in the solarcell technology industry, or that future competition will not have a material adverse effect on our business, operating results, and financial condition.Government RegulationWe are subject to various federal, state and local laws affecting wireless communication and security businesses. The Federal Trade Commission andequivalent state agencies regulate advertising and representations made by businesses in the sale of their products, which apply to us. Our business is alsosubject to government laws and regulations governing health, safety, working conditions, employee relations, wrongful termination, wages, taxes and othermatters applicable to businesses in general. Failure of Solar3D to comply with applicable government rules or regulations could have a material adverseeffect on our financial condition and business operations.EmployeesAs of December 31, 2011, we had two full time employees, our chief executive officer and our chief financial officer. We also relied upon theservices of consultants to assist us with designing photovoltaic receptors to produce electricity from that incident light energy.SeasonalityOur operations are not expected to be affected by seasonal fluctuations, although our cash flow may be affected by fluctuations in the timing ofinvestment capital to support our research and product development.ITEM2. PROPERTIESWe currently lease approximately 522 square feet of office space at 6500 Hollister Avenue, Suite 130, Goleta, California 93117 at a base rental rateof $2,500 per month pursuant to month to month lease.ITEM 3. LEGAL PROCEEDINGSWe are not currently a party to any material legal proceedings.ITEM4. [REMOVED AND RESERVED] 5Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsPART IIITEM5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITYSECURITIESCommon StockOur common stock trades on the OTC Bulletin Board Market under the symbol “SLTD.” The range of high and low bid quotations for each fiscalquarter within the last two fiscal years was as follows:Year Ended December 31, 2011 High Low First Quarter ended March 31, 2011 $0.30 $0.12 Second Quarter ended June 30, 2011 $0.27 $0.20 Third Quarter ended September 30, 2011 $0.27 $0.15 Fourth Quarter ended December 31, 2011 $0.23 $0.12 Year Ended December 31, 2010 High Low First Quarter ended March 31, 2010 $0.10 $0.04 Second Quarter ended June 30, 2010 $0.10 $0.05 Third Quarter ended September 30, 2010 $0.10 $0.01 Fourth Quarter ended December 31, 2010 $0.25 $0.05 The above quotations reflect inter-dealer prices, without retail markup, mark-down, or commission and may not necessarily represent actualtransactions.As of March 15, 2012, there were approximately 290 record holders of our common stock, not including shares held in “street name” in brokerageaccounts which is unknown. As of March 15, 2012, there were approximately 122,062,772 shares of our common stock outstanding on record.DividendsWe have not declared or paid any cash dividends on our common stock and do not anticipate paying dividends for the foreseeable future.Equity Compensation Plan InformationDuring the fiscal year ended December 31, 2011, we did not grant any stock options to purchase any shares of our common stock or award any otherstock incentives for management.Effective July 22, 2010, we granted nonqualified stock options to purchase up to 15,000,000 shares of our common stock to James B. Nelson, ourchief executive officer, at an exercise price of $0.05 per share exercisable until July 22, 2017 in consideration for his services to us. These stock options vest1/36th per month, commencing on August 21, 2010, on a monthly basis for as long as Mr. Nelson is an employee or consultant of Solar3D. 6Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsWarrantsFor the fiscal year ended December 31, 2011, we issued warrants to purchase unregistered common stock. The table below summarizes the numberof warrants issued, to whom issued, those that have been exercised and the number of shares of our common stock issued upon the exercise of those warrants.Warrant Holder Total WarrantsIssued Total WarrantsExercised Number of SharesofCommon StockIssued Bountiful Capital LLC 15,233,340 2,000,000 2,000,000 Channel Island Fund 666,668 666,668 666,668 Roland F. Bryan, President 1,000,000 ITEM6. SELECTED FINANCIAL DATA.Not applicable.ITEM7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSCautionary StatementsThis Form 10-K contains financial projections and other “forward-looking statements,” as that term is used in federal securities laws, about Solar3DInc.’s financial condition, results of operations and business. These statements include, among others, statements concerning the potential for revenues andexpenses and other matters that are not historical facts. These statements may be made expressly in this Form 10-K. You can find many of these statementsby looking for words such as “believes,” “expects,” “anticipates,” “estimates,” or similar expressions used in this Form 10-K. These forward-lookingstatements are subject to numerous assumptions, risks and uncertainties that may cause our actual results to be materially different from any future resultsexpressed or implied by us in those statements. The most important facts that could prevent us from achieving our stated goals include, but are not limited to,the following: (a)inability to complete research and development of the new Solar3D technology with little or no current revenue; (b)volatility or decline of our stock price; (c)potential fluctuation in quarterly results; (d)our failure to earn revenues or profits; (e)inadequate capital to continue business; 7Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents (f)barriers to raising the additional capital or to obtaining the financing needed to implement our business plans; (g)lack of demand for our products and services; (h)rapid and significant changes in markets; (i)litigation with or legal claims and allegations by outside parties; (j)insufficient revenues to cover operating costs; (k)inability to start or acquire new businesses, or lack of success of new businesses started or acquired by us, if any; (l)dilution experienced by our shareholders in their ownership of Solar3D because of the issuance of additional securities by us, or theexercise of outstanding convertible securities; (m)inability to effectively develop or commercialize our new Solar3D technology; and (n)inability to obtain patent or other protection for our proprietary intellectual property. Because the statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. We caution you not to place undue reliance on the statements, which speak only as of the date of this Form 10-K. The cautionarystatements contained or referred to in this section should be considered in connection with any subsequent written or oral forward-looking statements that weor persons acting on our behalf may issue.We do not undertake any obligation to review or confirm analysts’ expectations or estimates or to release publicly any revisions to any forward-looking statements to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events.The following discussion should be read in conjunction with our condensed financial statements and notes to those statements. In addition tohistorical information, the following discussion and other parts of this quarterly report contain forward-looking information that involves risks anduncertainties.OverviewOn August 5, 2010, the holders of a majority of our outstanding voting stock voted by written consent to (1) effect a one-for-five reverse stock split,and (2) change our name to Solar 3D, Inc. From that date forward our business focus has centered on the development, and commercialization of our newproprietary technology to significantly increase the efficiency and energy production of solar photovoltaic cells that are currently offered in the market andthat may be developed in the future. In furtherance of our business we applied for patents covering a novel three-dimensional solar cell technology that isdesigned to maximize the conversion of sunlight into electricity. We believe our new technology will dramatically increase the efficiency of solar cells.Almost all conventional solar cells have a two-dimensional design where up to 30 percent of incident sunlight is reflected off of each solar cell’ssurface and more light energy is lost inside the solar cell materials than is converted into energy. By contrast, our Solar3D design uses a matrix of light-collecting elements that guide sunlight into a corresponding array of three-dimensional, micro-photovoltaic structures. The sunlight, in the form of photons,is trapped among these micro-structures, where it bounces around until virtually all of the energy is converted into electricity. Solar3D aims to create a bettersolar cell using this innovative technique by eliminating surface reflection and maximizing the conversion of photons into electrons to achieve greaterefficiency and a lower cost per watt. 8Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsWe currently have two full time employees, our chief executive officer and our chief financial officer. We also retain the services of several researchconsultants who are responsible for product developmentCritical Accounting PoliciesOur discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been preparedin accordance with accounting principles generally accepted in the United States of America. The preparation of these financial statements requires us tomake estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets andliabilities. On an ongoing basis, we evaluate our estimates, including those related to impairment of property, plant and equipment, intangible assets,deferred tax assets and fair value computation using the Black Scholes option pricing model. We base our estimates on historical experience and on variousother assumptions, such as the trading value of our common stock and estimated future undiscounted cash flows, that we believe to be reasonable under thecircumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent fromother sources. Actual results may differ from these estimates under different assumptions or conditions; however, we believe that our estimates, includingthose for the above-described items, are reasonable.Use of EstimatesIn accordance with accounting principles generally accepted in the United States, management utilizes estimates and assumptions that affect thereported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements as well as the reportedamounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates and assumptions relate torecording net revenue, collectability of accounts receivable, useful lives and impairment of tangible and intangible assets, accruals, income taxes, inventoryrealization, stock-based compensation expense and other factors. Management believes it has exercised reasonable judgment in deriving these estimates.Consequently, a change in conditions could affect these estimates.Fair Value of Financial InstrumentsOur cash, cash equivalents, investments, accounts receivable and accounts payable are stated at cost which approximates fair value due to the short-term nature of these instruments.Revenue RecognitionWe will continue to recognize revenue in accordance with the Securities and Exchange Commission Staff Accounting Bulletin No. 104, “RevenueRecognition in Financial Statements” (“SAB 104”). We will continue to recognize revenue upon delivery, provided that evidence of an arrangement exists,title, and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable is reasonably assured. We willcontinue to record revenue net of estimated product returns, which is based upon our return policy, sales agreements, management estimates of potentialfuture product returns related to current period revenue, current economic trends, changes in customer composition and historical experience. We willcontinue to accrue for warranty costs, sales returns, and other allowances based on our prior experience in servicing customers and products. We may extendcredit to our customers based upon credit evaluations and do not require collateral. We do not and will not ship a product until we have either a purchaseagreement or rental agreement signed by the customer with a payment arrangement. This is a critical policy, because we want our accounting to show onlysales which are “final” with a payment arrangement. We do not intend to make consignment sales or inventory sales subject to a “buy back” or returnarrangement from customers.Provision For Sales Returns, Allowances and Bad DebtsWe will continue to maintain a provision for sales allowances, returns and bad debts. Sales returns and allowances result from equipment damagedin delivery or customer dissatisfaction, as provided by agreement. The provision will continue to be provided for by reducing gross revenue by a portion ofthe amount invoiced during the relevant period. The amount of the reduction will continue to be estimated based on historical experience. 9Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsResults of Operations for the Years Ended December 31, 2011 and 2010REVENUE AND COST OF SALESFor the years ended December 31, 2011 and 2010, the Company had no revenue or cost of sales and is in its development stage.SELLING, GENERAL, AND ADMINISTRATIVE EXPENSESSelling, general, and administrative (“SG&A”) expenses increased by $791,747 to $1,363,642 for the year ended December 31, 2011 compared to$571,895 for the year ended December 31, 2010. SG&A expenses increased due to increases in non-cash stock compensation cost of $499,200, and anincrease in overall operating expenses, including marketing services and salaries.RESEARCH AND DEVELOPMENTResearch and development (“R&D”) costs increased by $97,154 to $133,196 for the year ended December 31, 2011 compared to $36,042 for theyear ended December 31, 2010. This increase in R&D costs was the result of an increase in engineering costs, consulting fees and software license fees due toa change in focus of our technology.NET LOSSNet loss increased by $(929,597) to $(1,546,503) for the year ended December 31, 2011, compared to $(616,906) for the year ended December 31,2010. The increase in net loss was the result of an increase in operating expenses and non-cash stock compensation costs. Currently, operating costs exceedrevenue because sales are not yet significant. We cannot assure when or if revenue will commence or exceed operating costs.Liquidity and Capital ResourcesWe had no cash at December 31, 2011, as compared to $3,311 for the prior year ended December 31, 2010.During the year ended December 31, 2011, we used $(889,399) of cash for operating activities, as compared to $(408,325) for the prior year endedDecember 31, 2010. The increase of $(481,074) in cash used in operating activities was a result of an increase in net loss due to higher salaries, engineeringcosts and public relations expenses.Cash used in investing activities for the current year ended December 31, 2011, was $(2,078), as compared to cash used of $(5,366) for the prior yearended December 31, 2010 to purchase equipment.Cash provided by financing activities during the year ended December 31, 2011 was $888,166 as compared to $407,000 for the prior year endedDecember 31, 2010. Our capital needs have primarily been met from the proceeds of equity financing and shareholder loans. 10Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsWe will have additional capital requirements during 2012 necessary in order to complete research and development of working prototypes of ourthree-dimensional solar cells. We also expect that we will require additional capital in order to fabricate and market arrays of these 3-D solar cells. Althoughwe cannot quantify these anticipated costs with specificity, we estimate that we will require approximately $700,000 in funding over the next 12 months ofoperations, split almost evenly between product development and concerted marketing and sales efforts. We cannot assure that marketing and research anddevelopment costs in 2012 will not exceed or vary from those costs expected by management. We intend to meet our cash requirements through the sale ofshares of our common stock. We cannot assure that we will be able to raise additional capital or obtain additional financing for our business.We cannot assure that we will have sufficient capital to finance our growth and business operations or that such capital will be available on termsthat are favorable to us or at all. We are currently incurring operating deficits that are expected to continue for the foreseeable future.Going Concern QualificationWe have incurred significant losses from operations, and such losses are expected to continue. Our auditors have included a “Going ConcernQualification” in their report for the year ended December 31, 2011. In addition, we have limited working capital. The foregoing raises substantial doubtabout our ability to continue as a going concern. Management’s plans include seeking additional capital. We cannot guarantee that additional capital willbe available when and to the extent required, or that if available, it will be on terms acceptable to us. The financial statements do not include anyadjustments that might result from the outcome of this uncertainty. The “Going Concern Qualification” may make it substantially more difficult to raisecapital.Off-Balance Sheet ArrangementsWe do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues,results of operations, liquidity or capital expenditures. 11Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA OF SOLAR3D, INC.SOLAR3D, INC.(A DEVELOPMENT STAGE COMPANY) FINANCIAL STATEMENTSFOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010CONTENTS Reports of Independent Registered Public Accounting Firm12 Balance Sheets as of December 31, 2011 and 201013 Statements of Operations for the years ended December 31, 2011 and 201014 Statements of Changes in Stockholders’ Deficit for the years ended December 31, 2011 and 2010 15 Statements of Cash Flows for the years ended December 31, 2011 and 201016 Notes to Financial Statements17 12Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents Report of Independent Registered Public Accounting FirmTo the Board of Directors and ShareholdersSolar3D, Inc. (A Development Stage Company)Santa Barbara, CaliforniaWe have audited the accompanying balance sheets of Solar3D, Inc. (A Development Stage Company) as of December 31, 2011 and 2010, and the relatedstatements of operations, stockholders' equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company'smanagement. Our responsibility is to express an opinion on these financial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is notrequired to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internalcontrol over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing anopinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Solar3D, Inc. (A Development StageCompany) as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generallyaccepted accounting principles.The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to thefinancial statements, the Company does not generate significant revenue, it has negative cash flows from operations, and its total liabilities exceed its totalassets. This raises substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are alsodescribed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty./s/ HJ Associates & Consultants, LLPHJ Associates & Consultants, LLPSalt Lake City, UtahMarch 27, 2012 13Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.BALANCE SHEETSDECEMBER 31, 2011 AND 2010 December 31,2011 December 31,2010 ASSETS CURRENT ASSETS Cash and cash equivalents $- $3,311 Prepaid expense 25,000 24,822 TOTAL CURRENT ASSETS 25,000 28,133 PROPERTY & EQUIPMENT, at cost Machinery & equipment 13,080 13,080 Computer equipment 57,795 55,717 Furniture & fixture 4,670 4,670 75,545 73,467 Less accumulated depreciation (69,514) (67,923) NET PROPERTY AND EQUIPMENT 6,031 5,544 OTHER ASSETS Security deposit 2,975 2,975 TOTAL OTHER ASSETS 2,975 2,975 TOTAL ASSETS $34,006 $36,652 LIABILITIES AND SHAREHOLDERS' DEFICIT CURRENT LIABILITIES Bank Overdraft $12,916 $- Accounts payable 17,349 13,444 Accrued expenses - 453,232 Accrued interest, other - 25,025 Accrued interest, related parties - 107,074 Convertible promissory note - 65,000 TOTAL CURRENT LIABILITIES 30,265 663,775 SHAREHOLDERS' EQUITY/(DEFICIT) Common stock, $.001 par value;550,000,000 authorized shares;118,283,724 and 100,689,829 shares issued and outstanding, respectively 118,283 100,689 Additional paid in capital 9,974,861 7,815,088 Deficit accumulated during the development stage (10,089,403) (8,542,900) TOTAL SHAREHOLDERS' EQUITY/(DEFICIT) 3,741 (627,123) TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY/(DEFICIT) $34,006 $36,652 The accompanying notes are an integral part of these consolidated financial statements. 14Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsSOLAR3D, INC.STATEMENTS OF OPERATIONSFOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 From Inception January 30,2002 Year Ended through December 31,2011 December 31,2010 December 31,2011 REVENUE $- $- $1,127,406 COST OF SERVICES - - 496,177 GROSS PROFIT - - 631,229 OPERATING EXPENSES Selling, General and administrative expenses 1,363,642 571,895 6,287,148 Research and development 133,196 36,042 1,609,103 Impairment loss - - 1,753,502 Depreciation and amortization expense 1,591 500 121,838 TOTAL OPERATING EXPENSES 1,498,429 608,437 9,771,591 LOSS FROM OPERATIONS (1,498,429) (608,437) (9,140,362) OTHER INCOME/(EXPENSES) BEFORE PROVISION FOR INCOME TAXES Interest income 66 - 10,321 Interest expense (2,123) (8,469) (271,806)Penalties (29) - (184)Gain/(loss) on investment - - (73,121)Loss on settlement of debt (45,988) - (613,288)Gain/(loss) on sale of asset - - (963) TOTAL OTHER INCOME/(EXPENSES) (48,074) (8,469) (949,041) NET LOSS $(1,546,503) $(616,906) $(10,089,403) BASIC AND DILUTED LOSS PER SHARE $(0.01) $(0.01) WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED 109,533,761 70,364,029 The accompanying notes are an integral part of these consolidated financial statements. 15Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsSOLAR3D, INC.STATEMENTS OF STOCKHOLDERS' DEFICITFOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 Accumulated Deficit During Additional the Common stock Paid-in Development Shares Amount Capital Stage Total Balance from original Issuance at January 30,2002($0.00425 per share) ($7,650 in cash and apatent at fair value of $5,100) 3,000,000 $3,000 $9,750 $- $12,750 Issuance of common stock in February andMarch 2002(100,000 shares at $1.25 per share in cash) 100,000 100 124,900 - 125,000 Issuance of common stock in April 2002(8,000 shares at $1.25 per share in cash) 8,000 8 9,992 - 10,000 Issuance of common stock in April 2002(8,000 shares as finders fees) 8,000 8 (8) - - Issuance of common stock in May 2002(56,000 shares at $1.25 per share in cash) 56,000 56 69,944 - 70,000 Issuance of common stock in May 2002(8,000 shares as finders fees) 8,000 8 (8) - - Issuance of common stock in June 2002(20,000 shares at a price of $2.50 per share incash) 20,000 20 49,980 - 50,000 Net Loss for the year ended December 31, 2002 - - - (852,600) (852,600)Balance at December 31, 2002 3,200,000 3,200 264,550 (852,600) (584,850) Issuance of common stock in January 2003(420,916 ata price of $0.3041 per share in cash) 420,916 421 127,579 - 128,000 Issuance of common stock in March 2003(32,884 at a price of $0.3041 per share in cash) 32,884 33 9,967 - 10,000 Net Loss for the year ended December 31, 2003 - - - (394,115) (394,115)Balance, December 31, 2003 3,653,800 3,654 402,096 (1,246,715) (840,965) Issuance of common stock in January 2004(1,000 shares valued at $6,250 for services 1,000 1 6,249 - 6,250 Issuance of common stock in June 2004(640,000 shares at $0.625 per share inconversion debt) 640,000 640 399,360 - 400,000 Issuance of common stock in June 2004(400,000 shares at $0.625 per share forservices) 400,000 400 249,600 - 250,000 Issuance of common stock in Julythrough December 31, 2004 for cash 982,400 982 613,018 - 614,000 Net Loss for the year ended December 31, 2004 - - - (573,454) (573,454)Balance at December 31, 2004 5,677,200 5,677 1,670,323 (1,820,169) (144,169) Issuance of common stock in January 2005(548,800 shares at $0.625 per share for cash) 548,800 549 342,451 - 343,000 Issuance of common stock in March 2005(12,000 shares at $0.50 per share for cash) 12,000 12 29,988 - 30,000 Issuance of 152,680 warrants for services - - 129,550 - 129,550 Issuance of common stock in April 2005(12,000 shares at $2.50 per share for cash) 12,000 12 29,988 - 30,000 Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Issuance of common stock in May 2005(10,682 shares at fair value for services) 10,682 10 8,058 - 8,068 Issuance of common stock in May 2005(58,000 shares at $2.50 per share for cash) 58,000 58 144,942 - 145,000 Issuance of common stock in June 2005(42,000 shares at $2.50 per share for cash) 42,000 42 104,958 - 105,000 Issuance of 10,400 warrants for services - - 23,400 - 23,400 Net Loss for the year ended December 31, 2005 - - - (1,068,190) (1,068,190)Balance at December 31, 2005 6,360,682 6,360 2,483,658 (2,888,359) (398,342) Common stock warrants exercised in March2006(12,600 common stock warrants exercised at$0.625) 12,600 13 7,862 - 7,875 Private Placement in 2nd Qtr 2006(16,000 shares at $3.75 per share for cash) 16,000 16 59,984 - 60,000 Stock Compensation Cost - - 35,008 - 35,008 Common stock warrants exercised in August2006(2,000 common stock warrants exercised at$0.625) 2,000 2 1,248 - 1,250 Issuance of common stock in December 2006 (6,286 shares issued at $1.75 for cash) 6,286 6 10,994 - 11,000 Investment in Sense Comm(24,000 common stock issued at $3.00 pershare at FMV) 24,000 24 71,976 - 72,000 Stock Compensation Cost - - 4,847 - 4,847 Issuance of 24,800 warrants for services - - 46,861 - 46,861 Net Loss for the year ended December 31, 2006 - - - (611,967) (611,967)Balance at December 31, 2006 6,421,568 6,421 2,722,438 (3,500,326) (771,468) Common stock warrants exercised in January2007(1,273 common stock warrants exercised forcash at $3.00) 1,273 1 3,817 - 3,818 Issuance of common stock in January 2007(33,143 shares at $1.75 per share for cash) 33,143 33 57,967 - 58,000 Issuance of common stock in February 2007(8,000 shares at $1.75 per share for cash) 8,000 8 13,992 - 14,000 Issuance of 24,000 warrants for services - - 49,487 - 49,487 Issuance of common stock in April 2007(32,000 shares at $1.75 per share for cash) 32,000 32 55,968 - 56,000 Issuance of common stock in April 2007(1,530 shares at $2.50 per share for services) 1,530 2 3,824 - 3,826 Exercise of stock options in June 2007(10,000 shares at $0.625 per share for cash) 10,000 10 6,240 - 6,250 Conversion of note to common stock in June2007(114,286 shares at $1.75 per share inconversion of debt) 114,286 114 199,886 - 200,000 Issuance of common stock in June 2007(16,000 shares at $1.25 per share for cash) 16,000 16 19,984 - 20,000 Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Issuance of common stock in July 2007 (61,600 shares at $1.25 per share for cash) 61,600 62 76,938 - 77,000 Issuance of common stock in July 2007(120,000 shares at $2.00 per share for purchaseof investment) 120,000 120 239,880 - 240,000 Issuance of common stock in August 2007(4,000 shares at $1.25 per share for cash) 4,000 4 4,996 - 5,000 Issuance of common stock in September 2007(19,200 shares at $1.25 per share for cash) 19,200 19 23,981 - 24,000 Issuance of 8,333 warrants for services - - 12,345 - 12,345 Stock compensation cost - - 17,092 - 17,092 Issuance of common stock in October 2007(40,000 shares at $1.25 per share for cash) 40,000 40 49,960 - 50,000 Issuance of common stock in November 2007(3,425 shares at $1.50 per share for services) 3,425 3 5,133 - 5,136 Issuance of common stock in December 2007(345,000 shares at $1.00 per share for licensefees) 345,000 345 344,655 - 345,000 Issuance of common stock in December 2007(1,515,000 shares at $1.00 per share forpurchase of subsidiary) 1,515,000 1,515 1,513,485 - 1,515,000 Net Loss for the year ended December 31, 2007 - - - (1,025,773) (1,025,773)Balance at December 31, 2007 8,746,025 8,745 5,422,068 (4,526,099) 904,714 Issuance of common stock in March 2008 (2,649 shares at $1.25 per share for services) 2,649 3 3,308 - 3,311 Issuance of common stock in July 2008(14,667 shares at $0.625 per share for services) 14,667 15 9,153 - 9,168 Issuance of common stock in September 2008(60,000 shares at $0.175 per share for services) 60,000 60 10,440 - 10,500 Stock compensation cost - - 12,831 - 12,831 Issuance of common stock in September 2008(14,000 shares at $0.2275 per share forservices) 14,000 14 3,171 - 3,185 Contributed capital by shareholder - - 448,712 - 448,712 Net Loss for the year ended December 31, 2008 - - - (2,349,831) (2,349,831)Balance at December 31, 2008 8,837,341 8,837 5,909,683 (6,875,930) (957,410) Issuance of common stock in April 2009(1,240,000 shares at $0.1625 per share issuedfor services) 1,240,000 1,240 200,260 - 201,500 Issuance of common stock in May 2009(18,648,018 shares at $0.0053625 per shareissued for cash) 18,648,018 18,648 81,352 - 100,000 Issuance of common stock in May 2009(350,000 shares at $0.1275 per share issued forservices) 350,000 350 44,275 - 44,625 Issuance of common stock in May 2009(380,000 shares at $0.1275 per share issued forconversion of promissory note) 380,000 380 48,070 - 48,450 Issuance of common stock in May 2009(6,940,000 shares at $0.1275 per share issuedfor conversion of promissory note) 6,940,000 6,940 877,910 - 884,850 Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Contributed capital by shareholder - - 58,827 - 58,827 Net Loss for the year ended December 31, 2009 - - - (1,050,064) (1,050,064)Balance at December 31, 2009 36,395,359 36,395 7,220,377 (7,925,994) (669,222) Issuance of common stock in February 2010 forcash(16,000,000 shares of common stock issued at$0.0125 per share) 16,000,000 16,000 184,000 - 200,000 Issuance of common stock in July 2010 forcash(44,444,444 shares of common stock issued at$0.00225 per share) 44,444,444 44,444 55,556 - 100,000 Issuance of common stock in August 2010 forcash(1,050,000 shares of common stock issued at$0.010476 per share) 1,050,000 1,050 9,950 - 11,000 Issuance of common stock in December 2010for cash(2,800,000 shares of common stock issued at$0.05 per share) 2,800,000 2,800 137,200 - 140,000 Rounding shares 22 - - - - Stock compensation cost - - 208,005 - 208,005 Net loss for the year ended December 31, 2010 - - - (616,906) (616,906)Balance at December 31, 2010 100,689,829 100,689 7,815,088 (8,542,900) (627,123) Issuance of common stock for cash andsubscription payableprices per share between $0.05 and $0.075 13,203,338 13,203 855,297 - 868,500 Issuance of common stock for servicesprice per share $0.15 650,000 650 96,850 - 97,500 Conversion of debt into common stock 1,839,500 1,840 136,123 - 137,963 Cashless exercise of warrants 1,781,927 1,782 (1,782) - - Issuance of common stock for a fee at fair valueof $7,148 119,130 119 7,029 - 7,148 Stock compensation cost - - 499,200 - 499,200 Contribution of capital from related party saleof subsidiary - - 560,306 - 560,306 Common stock subscription payable - - 6,750 - 6,750 Net loss for the year ended December 31, 2011 - - - (1,546,503) (1,546,503) Balance at December 31, 2011 118,283,724 $118,283 $9,974,861 $(10,089,403) $3,741 The accompanying notes are an integral part of these consolidated financial statements. 16Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsSOLAR3D, INC.STATEMENTS OF CASH FLOWSFOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 From Inception January 30, 2002 Years Ended through December 31,2011 December 31,2010 December 31,2011 CASH FLOWS FROM OPERATING ACTIVITIES: Net loss $ (1,546,503) $(616,906) $(10,089,403) Adjustments to reconcile net loss to net cash used in operating activities Depreciation and amortization 1,591 500 121,838 Issuance of common shares and warrants for services 104,648 - 832,361 Issuance of common shares in conversion of debt - - 400,000 (Gain)/loss on investment - - 73,121 Stock Compensation Cost 499,200 208,005 776,983 Gain on sale of asset - - 963 Impairment loss - - 1,753,502 Loss on settlement of debt 45,988 - 613,288 Changes in Assets and Liabilities (Increase) Decrease in: Prepaid expenses (178) (24,822) (25,000) Deposits and other assets - - 2,025 Increase (Decrease) in: Accounts payable 3,905 (32,138) 96,849 Accrued expenses 1,950 57,036 587,281 NET CASH USED IN OPERATING ACTIVITIES (889,399) (408,325) (4,856,192) NET CASH FLOWS USED IN INVESTING ACTIVITIES: Purchase of property and equipment (2,078) (5,366) (81,198) Sale of asset - - 3,963 Investment in companies - - (6,121) NET CASH USED IN INVESTING ACTIVITIES (2,078) (5,366) (83,356) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from bank overdraft 12,916 12,916 Proceeds from notes payable related parties - - 1,174,342 Proceeds from convertible promissory note - - 129,000 Repayment of notes payable related party - (44,000) (184,000)Contributed capital by shareholder - - 19,197 Proceeds from subsidiary - - 300,000 Proceeds from subscription payable 6,750 - 6,750 Proceeds from issuance of common stock 868,500 451,000 3,473,693 NET CASH PROVIDED BY FINANCING ACTIVITIES 888,166 407,000 4,931,898 NET INCREASE IN CASH (3,311) (6,691) (7,650) CASH, BEGINNING OF PERIOD 3,311 10,002 7,650 CASH, END OF PERIOD $ - $3,311 $- SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid $ 173 $- $137,657 Income taxes $ - $- $- SUPPLEMENTAL DISCLOSURES OF NON-CASH TRANSACTIONS During the year ended December 31, 2011, the Company sold WDTI its subsidiary, for a secured note receivable of $100,000. The sale included the netbook value of the assets and liabilities of $(560,306). Also, 2,666,668 warrants to purchase shares of common stock were exercised through a cashlessconversion for 1,781,927 shares of common stock.; 133,334 shares were issued for a subscription receivable; issued 1,839,500 shares of common stock forconvertible debt. Also, the Company issued 650,000 shares for services at a fair value of $97,500. The accompanying notes are an integral part of these consolidated financial statements. 17Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsSOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2011 and 2010 1. ORGANIZATION AND LINE OF BUSINESSOrganizationSolar3D, Inc. (the "Company") was incorporated in the state of Delaware on January 30, 2002. The Company, based in Santa Barbara, California, beganoperations on January 30, 2002. We were originally formed in January 2002 as MachineTalker, Inc. in order to pursue the development of new wirelessprocess control technology. In September 2010, we shifted our engineering and research focus to developing a new means for generating solar-producedelectrical power, which we plan to patent and perfect for use in the manufacture of highly efficient solar cells. In July 2010, we changed our companyname to Solar3D, Inc. in order to better reflect our new business plan.Line of BusinessThe Company is currently in the stage of developing and marketing a new three-dimensional version of solar cell technology in order to maximize theconversion of sunlight into electricity. Conventional solar cells reflect a significant amount of incident sunlight losing much of the solar energy thatcould have been utilized to produce additional electrical power. Inspired by light management techniques used in fiber optic devices, Solar3D isdesigning a new type of solar cell, one that utilizes a three-dimensional design to trap sunlight inside the photovoltaic structure where it is reflectedmultiple times until much more of the energy is absorbed into the solar cell material. We have applied for patent protection on what we believe to be abreakthrough design for the next generation in solar cell technology with increased efficiency and resulting in a lower cost per watt of electricityproduced.Going ConcernThe accompanying financial statements have been prepared on a going concern basis of accounting, which contemplates continuity of operations,realization of assets and liabilities and commitments in the normal course of business. The accompanying financial statements do not reflect anyadjustments that might result if the Company is unable to continue as a going concern. The Company does not generate significant revenue, and hasnegative cash flows from operations, which raise substantial doubt about the Company’s ability to continue as a going concern. The ability of theCompany to continue as a going concern and appropriateness of using the going concern basis is dependent upon, among other things, an additionalcash infusion. Management believes the existing shareholders and potential prospective new investors will provide the additional cash needed to meetthe Company’s obligations as they become due, and will allow the development of its core of business.2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThis summary of significant accounting policies of Solar3D, Inc. is presented to assist in understanding the Company’s financial statements. Thefinancial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. Theseaccounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in thepreparation of the financial statements.Development Stage Activities and OperationsThe Company has been in its initial stages of development and for the year ended December 31, 2011, had insignificant revenues. A development stageactivity is one in which all efforts are devoted substantially to establishing a new business and even if planned principal operations have commenced,revenues are insignificant.Use of EstimatesThe preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates andassumptions that affect the amounts reported in the accompanying financial statements. Significant estimates made in preparing these financialstatements include the estimate of useful lives of property and equipment, the deferred tax valuation allowance, and the fair value of stock options.Actual results could differ from those estimates. 18Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2011 and 2010 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Revenue RecognitionWe recognize revenue upon delivery, provided that evidence of an arrangement exists, title, and risk of loss have passed to the customer, fees are fixed ordeterminable, and collection of the related receivable is reasonably assured. We record revenue net of estimated product returns, which is based upon ourreturn policy, sales agreements, management estimates of potential future product returns related to current period revenue, current economic trends,changes in customer composition and historical experience. We accrue for warranty costs, sales returns, and other allowances based on our experience,which tells us we have less than $25,000 per year in warranty returns and allowances. Generally, we extend credit to our customers and do not requirecollateral. We perform ongoing credit evaluations of our customers and historic credit losses have been within our expectations. We do not ship aproduct until we have either a purchase agreement or rental agreement signed by the customer with a payment arrangement. This is a critical policy,because we want our accounting to show only sales which are “final” with a payment arrangement. We do not make consignment sales, nor inventorysales subject to a “buy back” or return arrangement from customers. Accordingly, original equipment manufacturers do not presently have a right toreturn unsold products to us.We also grant exclusive licenses for the use of the technology required to operate our products. Software license revenue is recognized over the contractperiod, for those contracts that either do not contain a service component or that have services which are not essential to the functionality of any otherelement of the contract.Cash and Cash EquivalentThe Company considers all highly liquid investments with an original maturity of three months or less to be cash equivalents.Property and EquipmentProperty and equipment are stated at cost, and are depreciated using the straight line method over its estimated useful lives: Machinery & equipment5 YearsFurniture & fixtures5-7 YearsComputer equipment5 YearsDepreciation expense as of December 31, 2011 and 2010 was $1,591 and $500 respectively.Fair Value of Financial InstrumentsFair Value of Financial Instruments requires disclosure of the fair value information, whether or not recognized in the balance sheet, where it ispracticable to estimate that value. As of December 31, 2011 and 2010, the amounts reported for cash, prepaid expenses, accounts payable, and accruedexpenses approximate the fair value because of their short maturities.InventoryInventories are stated at the lower of cost (first-in, first-out basis) or market, and consists of raw materials. There was no inventory for the years endedDecember 31, 2011 and 2010.AdvertisingThe Company expenses advertising costs as incurred. Advertising costs for the years ended December 31, 2011 and 2010 were $11,523 and $5,472,respectively.Research and Development CostsResearch and development costs are expensed as incurred. These costs consist primarily of consulting fees, salaries and direct payroll related costs. Thecosts for the years ended December 31, 2011 and 2010 were $133,196 and $36,042, respectively. 19Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2011 and 20102. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)Stock-Based CompensationShare based payments apply to transactions in which an entity exchanges its equity instruments for goods or services, and also applies to liabilities anentity may incur for goods or services that are to follow a fair value of those equity instruments. We will be required to follow a fair value approach usingan option-pricing model, such as the Black-Scholes option valuation model, at the date of a stock option grant. The deferred compensation calculatedunder the fair value method would then be amortized over the respective vesting period of the stock option. The adoption of share based compensationhas no material impact on our results of operations.Loss per Share CalculationsLoss per Share dictates the calculation of basic earnings per share and diluted earnings per share. Basic earnings per share are computed by dividingincome available to common shareholders by the weighted-average number of common shares available. Diluted earnings per share is computed similarto basic earnings per share except that the denominator is increased to include the number of additional common shares that would have beenoutstanding if the potential common shares had been issued and if the additional common shares were dilutive. No shares for employee options orwarrants were used in the calculation of the loss per share as they were all anti-dilutive. The Company’s diluted loss per share is the same as the basic lossper share for the years ended December 31, 2011 and 2010, as the inclusion of any potential shares would have had an anti-dilutive effect due to theCompany generating a loss.Income TaxesThe Company uses the liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized for the future tax consequencesattributable to financial statements carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax creditcarry-forwards. The measurement of deferred tax assets and liabilities is based on provisions of applicable tax law. The measurement of deferred taxassets is reduced, if necessary, by a valuation allowance based on the amount of tax benefits that, based on available evidence, is not expected to berealized. Reclassifications Certain expenses of the year ended December 31, 2010, were reclassified to conform with the expenses in the year ended December 31, 2011. Recently Issued Accounting Pronouncements Management reviewed accounting pronouncements issued during the three months ended December 31, 2011, and no pronouncements were adoptedduring the period.3. INCOME TAXES The Company files income tax returns in the U.S. federal jurisdiction and the state of California. With few exceptions, the Company is no longer subjectto U.S. federal, state and local, or non-U.S. income tax examinations by tax authorities for years before 2009. Deferred income taxes have been provided by temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for tax purposes. To the extent allowed by GAAP, we provide valuation allowances against the deferred tax assets foramounts when the realization is uncertain.Included in the balances at December 31, 2011 and 2010, are no tax positions for which the ultimatedeductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred taxaccounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate but wouldaccelerate the payment of cash to the taxing authority to an earlier period. 20Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2011 and 2010 3. INCOME TAXES (Continued) The Company's policy is to recognize interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.During the periods ended December 31, 2011 and 2010, the Company did not recognize interest and penalties.4. DEFERRED TAX BENEFIT The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income fromcontinuing operations for the year ended December 31, 2011 and 2010 due to the following: 2011 2010 Book Income $(665,000) $(253,000)Depreciation - - Other 1,000 - Stock for Services 42,000 83,000 Loss on Settlement of Debt 18,000 - Stock Compensation Expense 200,000 - Valuation Allowance 404,000 170,000 Income tax expense $- $- Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible differences and operating loss and tax creditcarry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the difference between the reportedamounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it ismore likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects ofchanges in tax laws and rates on the date of enactment. Net deferred tax liabilities consist of the following components as of December 31, 2011 and 2010: 2011 2010 Deferred tax assets: NOL carryover $2,383,000 $1,812,000 R&D 140,000 128,000 Contributions 1,000 1,000 Related party accruals - 224,000 Deferred tax liabilities: Depreciation - - Less valuation allowance (2,524,000) (2,165,000) Net deferred tax asset $- $- Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards for federal income tax reporting purposes aresubject to annual limitations. Should a change in ownership occur, net operating loss carry-forwards may be limited as to use in future years. 21Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2011 and 20105. CAPITAL STOCKDuring the year ended December 31, 2011, the Company issued 5,953,338 shares of common stock at a price of $0.075 per share for cash of $456,500,with warrants attached to purchase 2,333,334 shares of common stock; issued 5,616,670 shares of common stock at a price of $0.06 per share for cash of$337,000, with warrants attached to purchase 11,233,340 shares of common stock; issued 1,500,000 shares of common stock at a price of $0.05 per sharefor cash of $75,000; and issued 1,839,500 shares of common stock with a fair value of $137,963 that were issued in conversion of $91,975 of debtresulting in the recognition of a $45,988 loss on settlement of debt. As part of the private placement in which warrants were attached for the purchase ofcommon stock, an investor exercised 2,666,667 warrants through a cashless exercise to purchase 1,781,927 shares of common stock. During the yearended December 31, 2011, the Company also issued 650,000 shares of common stock at $0.15 per share for services with a fair value of $97,500, andissued 119,130 shares of common stock for a fee with a fair value of $7,148. Also, 133,334 shares of common stock were issued for a $10,000subscription receivable, and the Company received cash of $6,750 for a subscription payable at the year ended December 31, 2011.During the year ended December 31, 2010, the Company issued 16,000,000 shares of common stock at a price of $0.0125 for $200,000 in cash;44,444,444 shares of common stock at a price of $0.00225 per share for $100,000 in cash; 1,050,000 shares of common stock at a price of $0.010476 pershare for cash of $11,000; and 2,800,000 shares of common stock at a price of $0.05 per share for cash of $140,000.6. STOCK OPTIONS AND WARRANTSDuring the year ended December 31, 2010, in consideration for services as a director of the Company, the Board of Directors issued to Mr. Nelson anonqualified stock option to purchase up to 15,000,000 shares of the Company’s common stock. The stock options were granted on July 22, 2010 andvest 1/36th per month commencing on a monthly basis for as long as he is an employee or consultant of the Company. The stock options are exercisablefor a period of seven years from the date of grant at an exercise price of $0.05 per share, as adjusted for the one for five reverse split of the Company’scommon stock. 2011 Risk free interest rate 2.38%Stock volatility factor 229%Weighted average expected option life 7 years Expected dividend yield None A summary of the Company’s stock option activity and related information follows: 12/31/2011 12/31/2010 Weighted Weighted Number average Number average of exercise of exercise Options price Options price Outstanding, beginning of period - $- - $- Granted 15,000,000 0.05 15,000,000 0.05 Exercised - - - - Expired - - - - Outstanding, end of period 15,000,000 $0.05 15,000,000 $0.05 Exercisable at the end of period 7,083,333 $0.05 2,083,333 $0.05 Weighted average fair value of options granted during the period $- $0.05 22Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2011 and 20106. STOCK OPTIONS AND WARRANTS (Continued)The stock-based compensation expense recognized in the statement of operations during the years ended December 31, 2011 and 2010, is $499,200 and$208,005, respectively.WarrantsA summary of the Company’s warrant activity and related information follows: 12/31/2011 12/31/2010 Weighted Weighted Number average Number average of exercise of exercise Warrants price Warrants price Outstanding, beginning of period 131,614 $0.11 173,280 $0.11 Granted 16,900,008 - - - Exercised (2,666,668) - - - Expired (11,614) 0.06 (41,666) 0.06 Outstanding, end of period 14,353,340 $0.06 131,614 $0.12 Exercisable at the end of period 14,353,340 $0.06 131,614 $0.05 Weighted average fair value of options granted during the period $0.00 $0.00 At December 31, 2011, the weighted average remaining contractual life of warrants outstanding: Weighted Average Remaining Exercisable Warrants Warrants Contractual Prices Outstanding Exercisable Life (years) $0.12 100,000 100,000 - $0.12 20,000 20,000 0.02 $0.08 1,333,334 1,333,334 4.42 $0.08 1,000,000 1,000,000 4.47 $0.08 1,333,334 1,333,334 4.54 $0.06 1,666,666 1,666,666 4.63 $0.06 1,000,000 1,000,000 4.69 $0.06 833,334 833,334 4.72 $0.06 666,668 666,668 4.75 $0.06 400,000 400,000 4.76 $0.06 833,334 833,334 4.81 $0.06 833,334 833,334 4.82 $0.06 833,334 833,334 4.86 $0.06 833,334 833,334 4.88 $0.06 1,000,000 1,000,000 4.90 $0.06 1,000,000 1,000,000 4.94 $0.06 666,668 666,668 4.96 14,353,340 14,353,340 The majority of the warrants were issued through equity financing, and has a cashless exercise option to purchase 14,233,340 shares of common stock asof December 31, 2011. 23Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents SOLAR3D, INC.(A Development Stage Company)Notes to Financial StatementsDecember 31, 2011 and 20107. CONVERTIBLE PROMISSORY NOTESDuring the year ended December 31, 2007, the Company entered into a two (2) year convertible promissory note that matured on October 16, 2009. Theprincipal amount of the note was $65,000, which had a stated interest rate of 12% per annum. During the period ended September 30, 2011, the principaland interest on the note were converted into 1,839,500 shares of common stock for book value of $91,975. The Company recognized a loss onsettlement of debt of $45,988 based on fair market value of the shares of common stock issued for settlement of the debt on the date of the transaction.8. RELATED PARTYDuring the period ended September 30, 2011, the Company assigned certain intellectual property having no book value along with related partyliabilities totaling $560,306 to its wholly owned subsidiary, Wideband Technologies, Inc. (WDTI). The related party is an officer, director and greaterthan 5% shareholder of the Company. Simultaneously, the Company sold 100% of its interest in WDTI to the same related party for $100,000, evidencedby a five year note receivable, bearing interest at 5% and secured by 10% perfected interest in the outstanding common stock of WDTI. Due to therelated party and common control relationship of the parties to these transactions, the resultant benefit to the Company of the $560,306 reduction inrelated party liabilities has been reflected as a contribution to capital in the accompanying financial statements. The collection of the $100,000 notereceivable is not reasonably assured and has therefore not been recognized as an asset in the accompanying financial statements. If and when theproceeds from the note receivable are received, an additional charge to contributed capital will be recognized in the amount received.9. SUBSEQUENT EVENTS Management has evaluated subsequent events according to the requirements of ASC TOPIC 855, and has reported the following events; During the month of January 2012, the Company issued 800,000 shares of common stock at a price of $0.05 for cash of $40,000, with warrants attachedto purchase 1,600,000 shares of common stock at a price of $0.05 per share. On February 3, 2012, the Company issued 160,000 shares of common stock at a price of $0.05 per share for cash of $8,000, with warrants attached topurchase 320,000 shares of common stock at a price of $0.05 per share. On February 13th and 22nd , 2012, the Company issued 1,385,714 shares of common stock at a price of $0.035 for cash of $48,500, with warrantsattached to purchase 2,771,428 shares of common stock at a price of $0.035 per share. On February 24, 2012, the Company issued 300,000 shares of common stock at a price of $0.030 per share for cash of $9,000, with warrants attached topurchase 600,000 shares of common stock at a price of $0.03 per share. On March 7th and 9th , 2012, the Company issued 1,133,334 shares of common stock at a price of $0.03 per share for cash of $34,000, with warrantsattached to purchase 2,266,666 shares of common stock at a price of $0.03 per share. 24Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsITEM9. HANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.None.ITEM9A. CONTROLS AND PROCEDURESEvaluation of Disclosure Controls and ProceduresWe carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer andprincipal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Basedupon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, ourdisclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of1934, as amended, is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to ourmanagement, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls andprocedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable,not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resourceconstraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation ofcontrols can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, weperformed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual reporthave been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements includedin this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.Management’s Report on Internal Control Over Financial ReportingOur management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f)under the Securities Exchange Act of 1934, as amended. Our management assessed the effectiveness of our internal control over financial reporting as ofDecember 31, 2011. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the TreadwayCommission (“COSO”) in Internal Control-Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal controlover financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not beprevented or detected on a timely basis. We have identified the following material weaknesses:As of December 31, 2011, we did not maintain effective controls over the control environment. Specifically, the board of directors does notcurrently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-B. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute amaterial weakness.Because of this material weakness, management has concluded that we did not maintain effective internal control over financial reporting as ofDecember 31, 2011, based on the criteria established in “Internal Control-Integrated Framework” issued by the COSO. 25Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsNo Attestation Report by Independent Registered AccountantThe effectiveness of our internal control over financial reporting as of December 31, 2011 has not been audited by our independent registered publicaccounting firm by virtue of our exemption from such requirement as a smaller reporting company.Changes in Internal Control Over Financial ReportingThere have been no changes in our internal control over financial reporting through the date of this report or during the quarter ended December 31,2011, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.Corrective ActionManagement plans to seek a candidate who would qualify as a financial expert to join our Board of Directors as an independent director to becomethe member of our audit committee. Improvements in our disclosure controls and procedures and in our internal control over financial reporting depends onour ability to add additional financial personnel and independent directors to provide more internal checks and balances, and to provide qualifiedindependence for our audit committee. We believe we will be able to commence achieving these goals once our sales and cash flow grow and our financialcondition improves.ITEM9B. OTHER INFORMATIONNone. 26Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsPART IIIITEM10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCEThe following table lists our executive officers and directors as of December 31, 2011: Name Age Position Roland F. Bryan (1) 77 President, Chief Financial Officer, Secretary, andChairman of the Board of Directors James B. Nelson 59 Chief Executive Officer and Director Mark J. Richardson 58 Director (1)Member of audit committee. Mr. Bryan is not an independent director and he may not qualify as a financial expert for the purposes of satisfying therequirements of the Securities and Exchange Commission that audit committees be comprised of independent directors, at least one of whom is afinancial expert. Management believes that our small size and limited resources has so far hindered us from attracting a fourth director who can serve onthe audit committee as an independent financial expert. Nevertheless, we will continue to seek such a candidate.Roland F. Bryan has been the president and chairman of the board of directors of Solar3D since our inception in January 2002, the chief financialofficer of Solar3D since November 2003, the secretary of Solar3D since May 2006, and the chief executive officer of Solar3D from inception to October2010. For the six years prior to founding Solar3D, Mr. Bryan was self employed as an independent advisor to several high-tech companies on corporateorganization, management, marketing and product development. Mr. Bryan’s professional background is in the areas computer science research and processcontrol through computer automation. During the last 25 years he has built up and sold several high-tech companies in the fields of telecommunicationsnetworking, military computer systems and commercial equipment for network access. In 1974, he founded Associated Computer Consultants, Inc., acompany that implemented interconnections to the first packet network for many United States government agencies. In 1983, the name of the company waschanged to Advanced Computer Communications, Inc. and continued to produce networking products for both military and commercialapplications. Advanced Computer Communications made the Inc. 500 List of Fastest Growing Companies in 1984. In 1991, the company was split into twoseparate businesses, one to concentrate on military products, the other to concentrate on commercial products. Advanced Computer Communications wasacquired by Ericsson in 1998 for $265 million. In September 1994, Wired Magazine honored Mr. Bryan and 18 others, as the “Creators of the Internet.”Mr. Bryan’s qualifications: · Leadership experience - Chairman of the board, founder and chief executive officer of Solar3D since our inception in January 2002.· Finance experience - As founder and president, and chief financial officer, Mr. Bryan has supervised our financial management since our inception.· Industry experience - Mr. Bryan is the founder of Solar3D who has developed and implemented our business plan since inception.· Government experience - Mr. Bryan has secured a number of long-term government contracts for the provision of products and consulting engineeringservices to the U.S. military and other government agencies.· Technology and education experience - Mr. Bryan is an inventor of our proprietary MachineTalker technology and an advisor to the researchersinvolved in development of our new 3-D solar cell technology. Mr. Bryan holds a number of patents in computer science and communicationstechnology. 27Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsJames B. Nelson has been a director and chief executive officer of Solar3D since October 2010. Mr. James Nelson began his executive career 30years ago at Bain and Company, a business strategy consulting firm, where he managed a team of consultants on four continents solving CEO-level programsfor global companies. Prior to joining Solar3D, he spent 20 years working in the private equity industry as both a capital partner and operating CEO toportfolio companies. Mr. Nelson was a general partner at Peterson Partners (2007-2009) and at Millennial Capital Partners (1991-2010--previously known asInvest West Capital). In addition to his responsibilities in acquisition and divestiture, Mr. Nelson worked as an executive of a number of portfoliocompanies. He served as chief executive officer of Euro-Tek Store Fixture, LLC, chairman of the board of American Retail Interiors, chairman of the boardand chief executive officer of Panelview Inc. and chairman of the board of Critical Power Exchange, as well as sitting on numerous boards both in and out ofthe private equity funds’ portfolios. Prior to his years in private equity, Mr. Nelson served as Vice President of Marketing at Banana Republic/The Gap,where he managed company-wide marketing, as well as the initial international expansion of Banana Republic. He was also general manager for BananaRepublic’s highly profitable catalog division. He also served as Vice President of Marketing and Corporate Development at Saga Corporation, a multi-billion dollar food service company. Mr. Nelson received his MBA from Brigham Young University, where he graduated summa cum laude and was namedthe Outstanding Master of Business Administration Graduate.Mr. Nelson’s qualifications: · Leadership experience – Chief executive officer since October 2010, and previously general partner at Peterson Partners (2007-2009) and atMillennial Capital Partners (1991-2010--previously known as Invest West Capital). He has also served as the chief executive officer of Euro-TekStore Fixture, LLC and Panelview Inc.· Industry experience - Mr. Nelson has worked in the solar industry since October 2010.· Education experience - Mr. Nelson received his MBA from Brigham Young University, where he graduated summa cum laude and was named theOutstanding Master of Business Administration Graduate.Mark J. Richardson has been a director of Solar3D since October 2008. Mr. Richardson has been a securities lawyer since he graduated from theUniversity of Michigan Law School in 1978. He practiced as an associate and partner in large law firms until 1993, when he established his own practiceunder the name Richardson & Associates. He has been the principal securities counsel on a variety of equity and debt placements for corporations,partnerships, and real estate companies. His practice includes public and private offerings, venture capital placements, debt restructuring, compliance withfederal and state securities laws, representation of publicly traded companies, Nadsaq filings, corporate law, partnerships, joint ventures, mergers, assetacquisitions, and stock purchase agreements. As a partner in a major international law firm in the 1980’s, Mr. Richardson participated in the leveragedbuyout and recapitalization of a well known producer of animated programming for children, financed by Prudential Insurance and Bear Stearns, Inc. He wasalso instrumental in restructuring the public debentures of a real estate company without resorting to a bankruptcy proceeding. From 1986 to 1993 Mr.Richardson was a contributing author to State Limited Partnerships Laws – California Practice Guide, Prentice Hall Law and Business. Prior to receiving hisjuris doctor degree cum laude from the University of Michigan Law School in 1978, Mr. Richardson received a bachelor of science degree summa cum laudein Resource Economics from the University of Michigan School of Natural Resources in 1975, where he earned the Bankstrom Prize for academic excellenceand achieved Phi Beta Kappa honors. Mr. Richardson is an active member of the Los Angeles County and California State Bar Associations, including theSection on Corporations, Business and Finance and the Section on Real Estate. Richardson & Associates is outside corporate legal counsel for Solar3D andcertain of our affiliates.Mr. Richardson’s qualifications: · Leadership experience – Established his own law practice under the name Richardson & Associates in 1993.· Industry experience - Mr. Richardson’s practice includes public and private offerings, venture capital placements, debt restructuring, compliance withfederal and state securities laws, representation of publicly traded companies, Nasdaq filings, corporate law, partnerships, joint ventures, mergers, assetacquisitions, and stock purchase agreements.· Education experience - Mr. Richardson received his juris doctor degree cum laude from the University of Michigan Law School in 1978 and abachelor of science degree summa cum laude in Resource Economics from the University of Michigan School of Natural Resources in 1975, where heearned the Bankstrom Prize for academic excellence and achieved Phi Beta Kappa honors.No officer or director is required to make any specific amount or percentage of his business time available to us. Each of our officers intends todevote such amount of his or her time to our affairs as is required or deemed appropriate by us. 28Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsLimitation of Liability and Indemnification of Officers and DirectorsUnder Delaware General Corporation Law and our articles of incorporation, our directors will have no personal liability to us or our stockholders formonetary damages incurred as the result of the breach or alleged breach by a director of his “duty of care.” This provision does not apply to the directors’ (i)acts or omissions that involve intentional misconduct or a knowing and culpable violation of law, (ii) acts or omissions that a director believes to be contraryto the best interests of the corporation or our shareholders or that involve the absence of good faith on the part of the director, (iii) approval of any transactionfrom which a director derives an improper personal benefit, (iv) acts or omissions that show a reckless disregard for the director’s duty to the corporation orour shareholders in circumstances in which the director was aware, or should have been aware, in the ordinary course of performing a director’s duties, of arisk of serious injury to the corporation or our shareholders, (v) acts or omissions that constituted an unexcused pattern of inattention that amounts to anabdication of the director’s duty to the corporation or our shareholders, or (vi) approval of an unlawful dividend, distribution, stock repurchase orredemption. This provision would generally absolve directors of personal liability for negligence in the performance of duties, including gross negligence.The effect of this provision in our articles of incorporation is to eliminate the rights of Solar3D and our stockholders (through stockholder’sderivative suits on behalf of Solar3D) to recover monetary damages against a director for breach of his fiduciary duty of care as a director (including breachesresulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) through (vi) above. This provision does not limit noreliminate the rights of Solar3D or any stockholder to seek non-monetary relief such as an injunction or rescission in the event of a breach of a director’s dutyof care. In addition, our Articles of Incorporation provide that if Delaware law is amended to authorize the future elimination or limitation of the liability of adirector, then the liability of the directors will be eliminated or limited to the fullest extent permitted by the law, as amended. Delaware General CorporationLaw grants corporations the right to indemnify their directors, officers, employees and agents in accordance with applicable law. Our bylaws provide forindemnification of such persons to the full extent allowable under applicable law. These provisions will not alter the liability of the directors under federalsecurities laws.We intend to enter into agreements to indemnify our directors and officers, in addition to the indemnification provided for in our bylaws. Theseagreements, among other things, indemnify our directors and officers for certain expenses (including attorneys’ fees), judgments, fines, and settlementamounts incurred by any such person in any action or proceeding, including any action by or in the right of Solar3D, arising out of such person’s services as adirector or officer of Solar3D, any subsidiary of Solar3D or any other company or enterprise to which the person provides services at the request ofSolar3D. We believe that these provisions and agreements are necessary to attract and retain qualified directors and officers.Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling Solar3Dpursuant to the foregoing provisions, Solar3D has been informed that in the opinion of the Securities and Exchange Commission, such indemnification isagainst public policy as expressed in the Securities Act and is therefore unenforceable.Board CommitteesOur board of directors has appointed an audit committee. As of March 15, 2012, the sole member of the audit committee is Roland F. Bryan, whomay not be considered to be independent as defined in Rule 4200 of Nasdaq’s listing standards. The board of directors has adopted a written charter of theaudit committee. The audit committee is authorized by the board of directors to review, with our independent accountants, our annual financial statementsprior to publication, and to review the work of, and approve non-audit services performed by, such independent accountants. The audit committee will makeannual recommendations to the board for the appointment of independent public accountants for the ensuing year. The audit committee will also review theeffectiveness of the financial and accounting functions and our organization, operations and management. The audit committee was formed on February 8,2005. The audit committee held one meeting during fiscal year ended December 31, 2011.Our board of directors does not have a compensation committee so all decisions with respect to management compensation are made by the wholeboard. Our board of directors does not have a nominating committee. Therefore, the selection of persons or election to the board of directors was neitherindependently made nor negotiated at arm’s length.Report of the Audit CommitteeOur audit committee has reviewed and discussed our audited financial statements for the fiscal year ended December 31, 2011 with seniormanagement. The audit committee has also discussed with HJ Associates & Consultants, LLP, Certified Public Accountants, our independent auditors, thematters required to be discussed by the statement on Auditing Standards No. 61 (Communication with Audit Committees) and received the writtendisclosures and the letter from HJ required by Independence Standards Board Standard No. 1 (Independence Discussion with Audit Committees). The auditcommittee has discussed with HJ the independence of HJ as our auditors. Finally, in considering whether the independent auditors provision of non-auditservices to us is compatible with the auditors’ independence for HJ, our audit committee has recommended to the board of directors that our audited financialstatements be included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010 for filing with the United States Securities andExchange Commission. Our audit committee did not submit a formal report regarding its findings. 29Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsAUDIT COMMITTEERoland F. BryanNotwithstanding anything to the contrary set forth in any of our previous or future filings under the United States Securities Act of 1933, asamended, or the Securities Exchange Act of 1934, as amended, that might incorporate this report in future filings with the Securities and ExchangeCommission, in whole or in part, the foregoing report shall not be deemed to be incorporated by reference into any such filing.Code of ConductWe have adopted a code of conduct that applies to all of our directors, officers and employees. The text of the code of conduct has been posted onSolar3D’s internet website and can be viewed at www.Solar3D.com. Any waiver of the provisions of the code of conduct for executive officers and directorsmay be made only by the audit committee and, in the case of a waiver for members of the audit committee, by the board of directors. Any such waivers will bepromptly disclosed to our shareholders.Compliance with Section 16(A) of Exchange ActSection 16(a) of the Exchange Act requires our officers and directors, and certain persons who own more than 10% of a registered class of our equitysecurities (collectively, “Reporting Persons”), to file reports of ownership and changes in ownership (“Section 16 Reports”) with the Securities and ExchangeCommission. Reporting Persons are required by the SEC to furnish us with copies of all Section 16 Reports they file.Based solely on our review of the copies of such Section 16 Reports received by us, or written representations received from certain ReportingPersons, all Section 16(a) filing requirements applicable to our Reporting Persons during and with respect to the fiscal year ended December 31, 2011 havebeen complied with on a timely basis.ITEM11. EXECUTIVE COMPENSATIONCompensation Discussion and AnalysisThe following Compensation Discussion and Analysis describes the material elements of compensation for our executive officers identified in theSummary Compensation Table (“Named Executive Officers”), and executive officers that we may hire in the future. As more fully described below, our boardof directors makes all decisions for the total direct compensation of our executive officers, including the Named Executive Officers. We do not have acompensation committee, so all decisions with respect to management compensation are made by the whole board.Compensation Program Objectives and RewardsOur compensation philosophy is based on the premise of attracting, retaining, and motivating exceptional leaders, setting high goals, workingtoward the common objectives of meeting the expectations of customers and stockholders, and rewarding outstanding performance. Following thisphilosophy, in determining executive compensation, we consider all relevant factors, such as the competition for talent, our desire to link pay withperformance in the future, the use of equity to align executive interests with those of our stockholders, individual contributions, teamwork and performance,and each executive’s total compensation package. We strive to accomplish these objectives by compensating all executives with total compensationpackages consisting of a combination of competitive base salary and incentive compensation. 30Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsWhile we have only hired one additional executive since inception because our business has not grown sufficiently to justify additional hires, weexpect to grow and hire in the future. One of our Named Executive Officers has been with us for many years and his compensation has basically been static,based primarily on the level at which we can afford to retain him and his responsibilities and individual contributions. To date, we have not applied a formalcompensation program to determine the compensation of the Named Executives Officers. In the future, as we and our management team expand, our board ofdirectors expects to add independent members, form a compensation committee comprised of independent directors, and apply the compensation philosophyand policies described in this section of the Form 10-K.The primary purpose of the compensation and benefits described below is to attract, retain, and motivate highly talented individuals when we dohire, who will engage in the behaviors necessary to enable us to succeed in our mission while upholding our values in a highly competitivemarketplace. Different elements are designed to engender different behaviors, and the actual incentive amounts which may be awarded to each NamedExecutive Officer are subject to the annual review of the board of directors. The following is a brief description of the key elements of our planned executivecompensation structure.· Base salary and benefits are designed to attract and retain employees over time.· Incentive compensation awards are designed to focus employees on the business objectives for a particular year.· Equity incentive awards, such as stock options and non-vested stock, focus executives’ efforts on the behaviors within the recipients’control that they believe are designed to ensure our long-term success as reflected in increases to our stock prices over a period of severalyears, growth in our profitability and other elements.· Severance and change in control plans are designed to facilitate a company’s ability to attract and retain executives as we compete fortalented employees in a marketplace where such protections are commonly offered. We currently have not given separation benefits to anyof our Name Executive Officers.BenchmarkingWe have not yet adopted benchmarking but may do so in the future. When making compensation decisions, our board of directors may compareeach element of compensation paid to our Named Executive Officers against a report showing comparable compensation metrics from a group that includesboth publicly-traded and privately-held companies. Our board believes that while such peer group benchmarks are a point of reference for measurement, theyare not necessarily a determining factor in setting executive compensation as each executive officer’s compensation relative to the benchmark varies basedon scope of responsibility and time in the position. We have not yet formally established our peer group for this purpose.The Elements of Solar3D’s Compensation ProgramBase SalaryExecutive officer base salaries are based on job responsibilities and individual contribution. The board reviews the base salaries of our executiveofficers, including our Named Executive Officers, considering factors such as corporate progress toward achieving objectives (without reference to anyspecific performance-related targets) and individual performance experience and expertise. None of our Named Executive Officers have employmentagreements with us. Additional factors reviewed by the board of directors in determining appropriate base salary levels and raises include subjective factorsrelated to corporate and individual performance. For the year ended December 31, 2011, all executive officer base salary decisions were approved by theboard of directors.Our board of directors determines base salaries for the Named Executive Officers at the beginning of each fiscal year, and the board proposes newbase salary amounts, if appropriate, based on its evaluation of individual performance and expected future contributions. We do not have a 401(k) Plan, butif we adopt one in the future, base salary would be the only element of compensation that would be used in determining the amount of contributionspermitted under the 401(k) Plan.Incentive Compensation AwardsThe Named Executives have not been paid bonuses and our board of directors has not yet established a formal compensation policy for thedetermination of bonuses. If our revenue grows and bonuses become affordable and justifiable, we expect to use the following parameters in justifying andquantifying bonuses for our Named Executive Officers and other officers of Solar3D: (1) the growth in our revenue, (2) the growth in our earnings beforeinterest, taxes, depreciation and amortization, as adjusted (“EBITDA”), and (3) our stock price. The board has not adopted specific performance goals andtarget bonus amounts for any of our fiscal years, but may do so in the future. 31Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsEquity Incentive AwardsOur board has not yet adopted a management equity incentive plan and no stock options or other equity incentive awards have yet been made toany of our Named Executives or other officers or employees of Solar3D, except for the one-time grant of 15,000,000 stock options to James B. Nelson, ourchief executive officer, in 2010. In the future we plan to adopt a formal management equity incentive plan pursuant to which we plan to grant stock optionsand make restricted stock awards to members of management, which would not be assignable during the executive’s life, except for certain gifts to familymembers or trusts that benefit family members. These equity incentive awards, we believe, would motivate our employees to work to improve our businessand stock price performance, thereby further linking the interests of our senior management and our stockholders. The board will consider several factors indetermining whether awards are granted to an executive officer, including those previously described, as well as the executive’s position, his or herperformance and responsibilities, and the amount of options or other awards, if any, currently held by the officer and their vesting schedule. Our policy willprohibit backdating options or granting them retroactively.Benefits and PrerequisitesAt this stage of our business we have limited benefits and no prerequisites for our employees other than health insurance and vacation benefits thatare generally comparable to those offered by other small private and public companies or as may be required by applicable state employment laws. We donot have a 401(k) Plan or any other retirement plan for our Named Executive Officers. We may adopt these plans and confer other fringe benefits for ourexecutive officers in the future if our business grows sufficiently to enable us to afford them.Separation and Change in Control ArrangementsWe do not have any employment agreements with our Named Executive Officers or any other executive officer or employee of Solar3D. None ofthem are eligible for specific benefits or payments if their employment or engagement terminates in a separation or if there is a change of control.Executive Officer CompensationThe following table sets forth the total compensation paid in all forms to the executive officers and directors of Solar3D during the periodsindicated:Summary Compensation Table Name andPrincipalPosition (1) Year Salary Bonus OptionAwards Non-EquityIncentive Plan Compensation Non-QualifiedDeferredCompensationEarnings All OtherCompensation Total James B. Nelson, 2010 $50,000(1) 0 $1,497,636 0 0 0 $1,547,636 Chief ExecutiveOfficer 2011 $258,333(2) 0 0 0 0 0 $255,000 Roland F. Bryan, 2010 $105,000 0 0 0 0 0 $105,000 President andChief FinancialOfficer 2011 $60,000 0 0 0 0 0 $60,000 Officers as aGroup 2010 $155,000 0 1,497,636 0 0 0 $1,652,636 2011 $318,333 0 0 0 0 0 $315,00 (1) Based on an annual salary of $200,000 per year. (2) Based on an annual salary of $200,000 through February 28, 2011 and $270,000 thereafter. 32Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsEmployment AgreementsWe have not entered into any employment agreements with our executive officers to date. We may enter into employment agreements with them inthe future.Outstanding Equity AwardsThe following table sets forth information with respect to unexercised stock options, stock that has not vested, and equity incentive plan awardsheld by our executive officers at December 31, 2011.Option AwardsName Number ofSecuritiesUnderlyingUnexercisedOptionsExercisable Number ofSecuritiesUnderlyingUnexercisedOptionsUnexercisable Option ExercisePrice OptionExpiration Date James B. Nelson,Chief Executive Officer 7,083,333(1) 7,916,667 $0.05 July 22, 2017 (1) On July 22, 2010, Mr. Nelson received nonqualified stock options to purchase 15,000,000 shares of our common stock at an exercise price of $0.05 pershare exercisable until July 22, 2017 in consideration for his services to us. These stock options vest 1/36th per month, commencing on August 21,2010, on a monthly basis for as long as Mr. Nelson is an employee or consultant of Solar3D.Option Exercises and Stock VestedNone of our executive officers exercised any stock options or acquired stock through vesting of an equity award during the fiscal year endedDecember 31, 2011.Director CompensationNo compensation was paid to our directors and no stock or option awards for directors were outstanding on December 31, 2011. 33Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsITEM12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSThe following table sets forth the names of our executive officers and directors and all persons known by us to beneficially own 5% or more of theissued and outstanding common stock of Solar3D at March 15, 2012. Beneficial ownership is determined in accordance with the rules of the Securities andExchange Commission. In computing the number of shares beneficially owned by a person and the percentage of ownership of that person, shares ofcommon stock subject to options held by that person that are currently exercisable or become exercisable within 60 days of March 15, 2012 are deemedoutstanding even if they have not actually been exercised. Those shares, however, are not deemed outstanding for the purpose of computing the percentageownership of any other person. The percentage ownership of each beneficial owner is based on 122,062,772 outstanding shares of common stock. Except asotherwise listed below, the address of each person is c/o Solar3D, Inc., 6500 Hollister Avenue, Suite 130, Goleta, California 93117. Except as indicated, eachperson listed below has sole voting and investment power with respect to the shares set forth opposite such person’s name as of March 15, 2012.Name, Title, and Address of Stockholder Number ofSharesBeneficiallyOwned (1) PercentageOwnership Roland F. Bryan, President, Chief Financial Officer, and Chairman 15,722,495(2) 12.9% James B. Nelson, Chief Executive Officer and Director 7,083,333(3) 5.8% Mark J. Richardson, Director1453 Third Street Promenade, Suite 315Santa Monica, California 90401 2,304,000 1.9% All Current Executive Officers as a Group (Three Persons) 25,109,828 20.06% Cumorah Capital 26,695,950 21.9% Pearl Innovations, LLC 23,565,950 19.3% (1) Except as pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to allshares of common stock beneficially owned. The total number of issued and outstanding shares and the total number of shares owned by each persondoes not include unexercised warrants and stock options, and is calculated as of March 15, 2012.(2) Includes 940,000 shares owned by the Bryan Family Trust. Mr. Bryan holds an option to purchase 216,000 shares from two existing shareholders at$2.50 per share, after accounting for reverse stock splits.(3) Includes 7,083,333 shares which may be purchased pursuant to stock options that are exercisable within 60 days of March 15, 2012. 34Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsITEM13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEAs of March 15, 2012, our sole member of the audit committee is Roland F. Bryan, who may not be considered to be independent as defined in Rule4200 of the National Association of Securities Dealers’ listing standards.ITEM14. PRINCIPAL ACCOUNTANT FEES AND SERVICESHJ Associates & Consultants, LLP, Certified Public Accountants is our principal auditing accountant firm. HJ has provided other non-audit servicesto us. The audit committee approved the engagement of HJ before HJ rendered audit and non-audit services to us.Each year the independent auditor’s retention to audit our financial statements, including the associated fee, is approved by the Board before thefiling of the previous year’s Annual Report on Form 10-K.HJ Fees 2011 2010 Audit Fees(1) $ 25,700 $27,500(1)Audit Related Fees -0- - 0 - Tax Fees(2) 740 1,618(2)All Other Fees -0- - 0 - $ 26,440 $29,118 (1)Audit fees consist of fees for the audit of our financial statements and review of the financial statements included in our quarterly reports. (2)Tax fees consist of fees for the preparation of original federal and state income tax returns and fees for miscellaneous tax consulting services. Pre-Approval Policies and Procedures of Audit and Non-Audit Services of Independent Registered Public Accounting FirmThe audit committee’s policy is to pre-approve, typically at the beginning of our fiscal year, all audit and non-audit services, other than de minimisnon-audit services, to be provided by an independent registered public accounting firm. These services may include, among others, audit services, audit-related services, tax services and other services and such services are generally subject to a specific budget. The independent registered public accountingfirm and management are required to periodically report to the full board of directors regarding the extent of services provided by the independent registeredpublic accounting firm in accordance with this pre-approval, and the fees for the services performed to date. As part of the board’s review, the board willevaluate other known potential engagements of the independent auditor, including the scope of work proposed to be performed and the proposed fees, andapprove or reject each service, taking into account whether the services are permissible under applicable law and the possible impact of each non-auditservice on the independent auditor’s independence from management. At audit committee meetings throughout the year, the auditor and management maypresent subsequent services for approval. Typically, these would be services such as due diligence for an acquisition, that would not have been known at thebeginning of the year.The audit committee has considered the provision of non-audit services provided by our independent registered public accounting firm to becompatible with maintaining their independence. The audit committee will continue to approve all audit and permissible non-audit services provided by ourindependent registered public accounting firm. 35Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of Contents PART IV ITEM15. EXHIBITS, FINANCIAL STATEMENT SCHEDULESExhibitsExhibit No. Description101.INS XBRL Instance Document101.SCH XBRL Taxonomy Extension Schema Document101.CAL XBRL Taxonomy Extension Calculation Linkbase Document101.DEF XBRL Taxonomy Extension Definition Linkbase Document101.LAB XBRL Taxonomy Extension Label Linkbase Document101.PRE XBRL Taxonomy Extension Presentation Linkbase Document 31.1 Section 302 Certification of Principal Executive Officer31.1 Section 302 Certification of Principal Accounting Officer32.1 Section 906 Certification of Principal Executive Officer32.2 Section 906 Certification of Principal Accounting Officer 36Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsSIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report tobe signed on its behalf by the undersigned, thereunto duly authorized.Dated: March 27, 2012 SOLAR3D, INC.By: /s/ James B. Nelson James B. Nelson, Chief Executive Officer (Principal Executive Officer)Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons onbehalf of the registrant and in the capacities and on the dates indicated.By: /s/ James B. Nelson Dated: March 27, 2012 James B. Nelson, Director and Chief Executive Officer (Principal Executive Officer)By: /s/ Roland F. Bryan Dated: March 27, 2012 Roland F. Bryan, Chairman of the Board, President, and Chief Financial Officer (Principal Accounting Officer)By: /s/ Mark J. Richardson Dated: March 27, 2012 Mark J. Richardson, Director 37Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Table of ContentsSource: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 31.1SECTION 302 CERTIFICATIONI, James B. Nelson, certify that:1.I have reviewed this Annual Report on Form 10-K of Solar3D, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting.5.The registrant’s other certifying officer(s) and I have disclosed, based on Solar3D’s most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’sinternal control over financial reporting. Dated: March 27, 2012By: /s/ James B. Nelson James B. Nelson, Chief Executive Officer(Principal Executive Officer) Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 31.2SECTION 302 CERTIFICATION I, Roland F. Bryan, certify that:1.I have reviewed this Annual Report on Form 10-K of Solar3D, Inc.;2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make thestatements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by thisreport;3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects thefinancial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others withinthose entities, particularly during the period in which this report is being prepared; b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements forexternal purposes in accordance with generally accepted accounting principles; c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about theeffectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s mostrecent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likelyto materially affect, the registrant’s internal control over financial reporting.5.The registrant’s other certifying officer(s) and I have disclosed, based on Solar3D’s most recent evaluation of internal control over financialreporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (of persons performing the equivalent functions): a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which arereasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’sinternal control over financial reporting. Dated: March 27, 2012By: /s/ Roland F. Bryan Roland F. Bryan, Chief Financial Officer(Principal Accounting Officer) Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 32.1CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Solar3D, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2011 (the “Report”) I,James B. Nelson, Chief Executive Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company.Dated: March 27, 2012 By: /s/ James B. Nelson James B. Nelson, Chief Executive Officer(Principal Executive Officer)This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required bythe Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 32.2CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002In connection with the Annual Report of Solar3D, Inc. (the “Company”) on Form 10-K for the period ending December 31, 2011 (the “Report”) I,Roland F. Bryan, Chief Financial Officer of the Company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief:(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations ofthe Company.Dated: March 27, 2012 By: /s/ Roland F. Bryan Roland F. Bryan, Chief Financial Officer(Principal Accounting Officer)This certification accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required bythe Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Source: Sunworks, Inc., 10-K, March 28, 2012Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.
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